The change could potentially save South Carolina as much as $1 million in printing and mailing costs this year, state projections indicate. And for the nearly200,000 South Carolina households that do not have bank accounts, a prepaid debit card offers an end run around check-cashing fees and protects against the risk of holding so much cash.
But the biggest winner could be Bank of America, which will issue the prepaid cards and stands to collect an untold amount in fees from card users and merchants who own the stores where the cards may be used. The arrangement allows the Charlotte, N.C. bank to charge some card users fees as high as $10 per transaction. And unlike ordinary debit cards linked to a bank account, there are no caps on the fees banks can charge merchants when customers use prepaid debit cards.
The South Carolina Department of Revenue's decision is part of a larger movement inside government. In 41 states, unemployment benefits are issued via prepaid debit card. Nearly every state issues food stamp and cash welfare benefits on prepaid debit or similar cards. Even the federal government will stop issuing traditional social security checks early next year. Government agencies stand to save millions while banks stand to gain much more.
The nation's largest banks have been eager to help government agencies make the transition to prepaid debit cards, industry analysts say. The reason: banks hungry to replace revenue lost to new financial regulation stand to collect millions in small fees from multiple card users and merchants.
Bank of America declined to answer detailed questions about the way that prepaid debit cards are most often used or the bank's projected earnings from the tax refund cards. But the bank insists the potential fees won't hit many customers."
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